On 31 July, the Essel Group has announced that Invesco Oppenheimer Developing Markets Fund has agreed to buy up to an 11% stake in ZEEL from its promoters, for a total consideration value of up to ₹ 4,224 crore. This amounts to ₹ 400 a share, a 10.7% premium to ZEEL's closing price the previous day.

Invesco Oppenheimer is an existing investor & had bought a 7.74% stake in ZEEL in 2012. The acquisition of additional 11% stake will take Oppenheimer's shareholding to 18.74%. Consequently, Essel Group's shareholding will fall from 35.79% to 24.79%.

Oppenheimer could not buy a higher stake, because they have a technical cap of 20% on a single scrip. They already held 8% of the company.

NO EXACT VALUE

ZEEL share held by the Essel Group are with lenders, who will have to place them with a third part in an 'escrow' amount. When the third party receives the money, the shares will be transferred to Oppenheimer. Hence it is not clear which lenders will agree to the escrow transfer, and the ultimate number of share purchased by Oppenheimer is "upto 11% for upto ₹ 4,224 crore."

BACKGROUND

The Essel group owes Mutual Funds (MFs) over ₹ 7,000 crore. The MFs had invested in papers issued by Essel group firms, which were backed by shares pledged by the promoters. The fund houses have agreed to refrain from selling the pledged shares to recover dues till end-September 2019. The total debt on the books of Essel as of December is ₹ 16,237 crore, whereas the promoter debt is ₹ 13,000 crore.

The original plan was to sell 20% of Essel's 35.79% stake in ZEEL, to fully pay off the debt.

Subhash Chandra & son Punit Goenka were looking for either a strategic or financial investor.

A consortium led by Comcast, included Atairos, Blackstone and James Murdoch's Lupa Systems was the prime candidate for sale of 20% stake. However, after months of negotiations, the deal did not materialise. Explaining ZEEL's position, in a press interview, ZEEL MD & CEO Punit Goenka said "Valuation was secondary. They made an offer & I didn't even negotiate it. My question to them was can you meet my timeline? They said they cannot meet my timeline. We were very open to sell to even the investors who wanted complete control as long as they took care of the entire debt situation."

WHAT NEXT?

Punit Goenka is optimistic of meeting the end September deadline to fully repay debt.

While he does not have an immediate buyer for a stake in ZEEL, he plans to bridge the gap with sale of nonmedia assets held by the Essel Group. These include infrastructure business, including roads, power transmission and solar energy assets.

Essel has an agreement to sell part of its solar portfolio to Adani Green Energy, while it is in talks to sell 3 road projects to a consortium led by the National Investment and Infrastructure Fund and Roads, after an earlier bid to sell to a Canadian pension fund fell through.

Despite Goenka's optimism, the non-media assets may be difficult to sell quickly, and according to unconfirmed press reports, Dish TV has resumed talks with Sunil Mittal's Airtel DTH.

DISH TV-AIRTEL DTH TALKS RESUME

The talks stalled a month ago, when Airtel is reported to have bid ₹ 35 per share against Dish TV's expectation of ₹ 45 per share.

Given the fact that Essel is in a less-thancommanding position, if the sale does fructify, it is likely to be at a price closer to the earlier offer of ₹ 35 per share, than the promoters' expectations.

It is interesting to note that Mittal is selling 50% stake in his group holding company to Singtel, making Airtel DTH a foreign (held) company. DishTV's sale to Airtel would make both companies foreign (owned) DTH platforms.

LOOKING AHEAD

India's media baron - Subhash Chandra is in an unenviably difficult position. Even in these difficult times, he has maintained stellar ethics, promising to repay all debts, even if it required selling the crown jewels of his media empire.

If ZEEL's control is lost to a foreign buyer, India would not have any local media group (except Network18 owned by Mukesh Ambani's Reliance) with a national presence.